Employment Tribunal Ruling on Overtime and Holiday Pay

Employment Tribunal Ruling on Overtime and Holiday Pay

As you may have seen widely reported in the media, a crucial recent legal judgment means that employers may need to make changes to the way they calculate holiday pay for employees working overtime.

In the case of Bear Scotland and others v Fulton and others the Employment Appeal Tribunal (EAT) ruled that that the method previously used to calculate holiday pay was incorrect and that workers should have voluntary and compulsory overtime taken into account when they are being paid for time taken as annual leave (up to a maximum of four weeks per annum).

With regard to retrospective claims for underpayment, the EAT ruled that anybody  making a claim must have had an underpayment for holiday pay that has taken place within three months of lodging an employment tribunal claim. Also, if a claim involves more than one underpayment, the claim will not be successful if there is a break of more than three months between these underpayments.  Employers should take into account the specific rules for calculating PAYE and National Insurance Contributions regarding any backdated payments.

It should be borne in mind that the EAT has given permission for this judgment to be appealed to the Court Of Appeal, so at this stage the position remains somewhat uncertain; however, the ruling has potentially far reaching financial implications for local authorities and other public bodies and the Government has established a Task Force to determine the effect on UK employers generally. Therefore, in the meantime, Council and other employers will need to seek agreement with their employees and representatives on any temporary measures that may be required.